Market report: Wednesday close

By Mickey Clark for MailOnline
Updated: 13:10 EDT, 19 March 2008

The proposed merger of pub chains Mitchells & Butlers and Punch Taverns has about as much appeal as a flat pint to City speculators these days.

Mickey Clark, Evening Standard

That was the conclusion being drawn as M&B's shares slumped 12½p to 340p, making them the second biggest fallers among second-liners. Punch made its all-share offer to M&B last month. The terms would see the enlarged company equally owned by both sets of shareholders and, as an incentive, M&B shareholders would be offered a cash payment of £175m, or 43p a share.

But the deal looks doomed, with the Punch share price tumbling a further 20p to 527p today. It has dropped from about 650p since the deal was announced, making the terms look less and less attractive. Lehman added to the gloom at M&B by slashing its target from 450p to 235p and repeating its underweight rating. It claims the company may need a cash injection after the failure of attempts to divest its property portfolio. M&B denies the claim.

Other casualties in the sector included JD Wetherspoon, down 8¼p at 240¾p, Enterprise Inns, 11¾p lower at 367¼p and Greene King, off 28p at 550p. The smoking ban, revenue increases and the fact that pubs have become so expensive mean that more drinkers are buying their booze from supermarkets. Beer sales are reckoned to be at their lowest since the 1930s.

Elsewhere, an early rally soon ran out of steam. The turning point was a bear raid on HBOS, which tumbled 34p to 446¼p after briefly touching 398p. Short sellers claimed the UK's biggest mortgage lender was in need of emergency funding, and the Bank of England would be on call over the weekend.

The story was denied by the BoE but the damage to the shares had already been done. JPMorgan is sticking with its underweight rating and 620p target on HBOS, while Collins Stewart has cut its target from 620p to 520p. It warns that UK banks are in 'a denial phase', with their capital shortfall having deteriorated significantly since the dividend reporting season last month.

The FTSE 100 index turned a lead of 47.8 points into a deficit of 60.20 at 5545.60. Wall Street traded nervously with the Dow posting a modest gain of 7.80 at 12,400.50 despite a successful start to trading in shares of credit-card operator Visa after a placing at $44 a share. The price is currently $59.50. Visa raised $18bn (£9bn) making it the biggest IPO on the New York Stock Exchange.

Turnover generally remains at a low ebb, which appears to be bad news for shares in the London Stock Exchange. Despite the fact that numerous suitors continue to knock at its door, the shares have dropped from a peak of 1979p this year. They retreated a further 46p to 1156p today.

Meanwhile, the fallout from the credit crisis is already being felt in dealing rooms worldwide. It is feared up to one in seven jobs may be lost in the City as employers start to cut costs.

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Job losses on Wall Street could reach 15% of the workforce in the wake of JPMorgan's takeover of Bear Stearns, which employs 14,000, with 1400 of them based in London. Cuts totalling 10% are forecast for the City as a whole.

This is bad news for Reuters, up 1p at 587p, which supplies most of the computerised trading and data systems used by securities houses. ABN Amro has repeated its sell recommendation.

Specialist medicines maker ReNeuron fell 2.75p to 11p after warning that the filing for approval of its ReN001 stroke therapy has been delayed by a request for more information by the US Food and Drug Administration.

It could take several months to meet the FDA's requirements, and this must be done before the company can begin clinical trials in the US.